Here’s a letter to Fortune. (I thank my friend Ross Kaminsky for sharing this Fortune article with me.)
Editor:
Interviewed by Sasha Rogelberg, Eswar Prasad says many sensible things about America’s economy, but he inadvertently sows confusion by saying that the reason that the recent spike in oil prices isn’t inflicting more damage on America’s economy is because “the U.S. is not the manufacturing powerhouse it once used to be” (“America is lucky it’s no longer a manufacturing powerhouse—it’s what’s protecting the US economy from the worst of the oil shock, top economist says,” May 4).
Of course the U.S. produces a smaller share of global manufacturing output today than in the past. In 2024 the U.S. produced ‘only’ 17% of global manufacturing output – a smaller share than the 25% to 30% that we produced in the mid-1970s, and much less than the nearly 50% that we produced just after the second world war. But this smaller share is due not to a decline in U.S. manufacturing but, instead, to an increase in manufacturing in other countries. U.S. manufacturing output is today just shy of the all-time high that it hit in late 2007. U.S. industrial output – a broader category of non-services and non-agricultural production – hit its all-time high in September 2018 and is today also just shy of that all-time high.
The bottom line here is that U.S. manufacturing output today is second only to that of China – and on a per-capita basis the U.S. produces 156% more manufacturing output than does China. To describe the U.S. as “no longer a manufacturing powerhouse” is incorrect.
As for why rising oil prices aren’t inflicting more damage on America’s economy, the chief reason surely is that U.S. manufacturing is today far more energy-efficient than it was in the 1970s. According to EBSCO, “US industry has been making significant strides in energy efficiency, reducing the amount of energy used per dollar’s worth of goods (energy intensity) by 50 percent between 1970 and 2003 (from 9.13 to 4.32 thousand Btu). Energy use per dollar’s worth of goods produced has continued to fall.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
